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Fibs, Fans and Logs

The chart below usually stops charting skeptics cold in their tracks. We can argue all day about whether Fibonacci levels should matter. But, it’s pretty obvious they have.

The reversal in 2010 at the .618 Fib resulted in a drop tot he .382. The tag in 2011 at the .786 Fib yielded a drop to the .500. The most recent large reversal came in 2015 at the 2.618 at 2138, resulting in additional backtests of the 1.272 at 1823.We can also see the importance of moving averages — with the 100-day (yellow) and 200-day (red) figuring prominently over the years. And, of course, channels have been extremely helpful in identifying periodic tops and bottoms.

I tend to chart in logarithmic scale because, besides making more logical sense to me, it offers earlier warnings of breaks in trend. According to the chart in log scale above, SPX has bounced (off the SMA200) to the midline of the rising white channel — often a point where reversals occur.

But, if we map a channel to the past couple of years in arithmetic scale, we get a very different result: a wild overshoot that corrected and is now back to the channel top — a moment of truth for the bulls.

Today is Day 9 of our analog, so we have a pretty good idea what to expect.